Home » Bob Murphy » General Gluts Redux.

General Gluts Redux.

[UPDATE: Bob has updated his article. The astute reader will notice that all the mistakes I point out in this article still apply.]

Bob Murphy responded to my article refuting his contention that a general glut is possible.

He lays out a 4 step case. Since the higher the number, the more important the ideas presented, we will go right to step 4. As is the right way to have a serious discussion, I will summarize his argument to [hopefully] his satisfaction, then show where the boo-boo is. As always, quotes always get italics, I get regular font.

Step 4: Bob spelled out in earlier steps that we are talking about the following situation. There is a glut on the market of some products, call them A. The great economist J.B. Say claims to have proven that A cannot include every item produced in the economy. There will always be some products, call them B, that will have been underproduced. To get out of a depression, which is defined by Bob in this context as too much A, Say wrote that the solution is to make less A and more B, which will of course involve diverting resources from A to B.

To which Bob has this to say:

4) Gene Callahan gave a little thought experiment, that made me think in terms of present and future goods and services. (Note how “Austrian” this is…)

In other words, wait a minute. What if A is in the present and B is in the future?

Bob elaborates:

We also needed to deal with the fact that leisure is a present consumption good.

in other words, what if A includes lying around doing nothing? After all, the great Austrians have emphasized that leisure is a consumer good. Rothbard even went so far as to write that the proposition that leisure is a consumer good is one of the Big Three of Austrian Economics.

Bob continues:

In light of these subtleties, I realized that maybe it’s a bit odd to say, “No, a general glut is impossible, there can be overproduction in some lines, but only if there is underproduction in others lines,” if it so happens that all of the overproduction is concentrated in present goods (including leisure), while the underproduction is concentrated in future goods.

I mean, if A is everything made in the present, including leisure, and B is everything made in the future, that means that at present we have too much of everything.

Bob concludes:

If you think through what that would look like, why it has the same observable features as “an economic depression.”

Because what you see right now is too much of everything everywhere. You can’t see into the future, it’s invisible. In particular you can’t see today right now all those B’s that are theoretically the underproduced stuff.

I think I have summarized his position in a way that he will agree with.

Now, sadly and reluctantly, Smiling Dave will show that this impressive intellectual edifice is as full of holes as a Swiss cheese.

1. Bob’s first blunder is a misunderstanding of Say’s Law. So it’s time to explain it in simple language that anyone can understand. Bob, draw a horizontal axis. Label it t, for time. Say’s Law asserts that for any given value of T of t, there cannot be a general glut in time T. I hope we agree that if said assertion is proven, you must confess your articles to be in error. Because you think the proof of Say’s Law admits the possibility that there might be a general glut in time P, which is balanced by future production in time Q. No way, Jose.

The proof itself is trivial. Consider everything in existence in time T that has been produced but not yet been sold, call them products A, B, C etc. The fellow who made A, in a barter economy, can trade at least some of his A for some B, some C, etc. The fellow who made B, in a barter economy, can  trade at least some of his B for some some A, some C etc. And guess what, they will go ahead and trade. That’s why they produced the stuff in the first place.

After the initial rounds of trading, each person will have some unsold product. For each product X, the producer will then say to himself, let me see if I can get more of what I want with my leftover X. Another round of trading will begin. And so it will continue until either everyone gets rid of everything, or some people have leftover X with nothing to left to buy with it. The ones with leftover X have what we call a particular glut at time T for products X. Had other people made some more non-X that the producer of X wants, the producer of X would have been able to trade away his X and everyone would have sold everything.

But what about a money economy? Doesn’t that complicate things? No. Assume the producer of X is willing to trade one X for two Y, and the producer of Y is willing to make the same trade. Then the prices of X and Y will settle in such a way that one X and two Y have the same price. Nothing special or complicated there.

Bottom line, this whole present goods balanced by future goods is a big boo-boo. Re-read your sources about Say’s Law, both Rothbard and Say himself, and you will see I am right.

2. Not as important a blunder, but a major one still, is misunderstanding what leisure is. When the great Austrians wrote that leisure is a consumer good, they did not mean that leisure is something people sell to other people. Nobody goes to a store and says, “I’ll have a gallon of milk, a loaf of bread, a haircut, and a bottle of leisure.” All Mises and the others meant was that in listing a person’s scale of values, first cow, second horse etc, that leisure has to be somewhere in that scale. But leisure is not something sold in the supermarket.

When people complain about general gluts, or any kind of glut, they are complaining about too much of something that is for sale. And Say’s law, too, is only talking about things that are for sale in a store. What a mistake, to introduce leisure into a discussion of Say’s Law!

The article is long already, and the major points discussed, so I’ll present the rest of Bob’s boo-boos in outline form only.

3. I wrote that no price changes of any kind, not for resources nor for wages, are needed to produce the balance of A and B [mentioned in my summary of Bob’s argument] that Say was talking about. Bob replied with a quote from Rothbard which talks about lowering prices, and he thinks that quote is talking about how to “solve” a depression.

Bob, we are talking about two different things. If you have one of those ice cube makers in your refrigerator, and it goes haywire and starts flooding the house with ice cubes, you have two problems. First, what to do with all those ice cubes. Second, and more important, how to turn that thing off and stop the endless flow of ice cubes.

Rothbard is talking about how to get rid of the ice cubes, not how to turn off the machine. Some guy has excess inventory. He thinks there is “not enough money” out there to buy it. Rothbard tells him. lower the price and you will unload your inventory.

But that does not “solve” a depression. If he keeps making ice cubes nobody wants, he will be in trouble. What he has to do is stop making them. And that can be done with no prices changing of anything, as detailed in my first article.

4. Finally, economics as a science has developed through time. In Say’s day, the ABCT was not understood. When Say wrote “too much A was made”, he could not explain why too much A was made. He just made the correct observation that it was too much A that was made, not too much of everything. He also knew what would fix the economy, namely, make less A. He did not go into detail about what market process will lead to less A being made. [Remember, we are talking about turning off the machine, not selling off the ice cubes].

As time went on, ABCT was discovered. It added to our understanding, by filling in the aforementioned blanks in Say’s understanding. We now know why too much A was made [inflation of money supply creating malinvestments] and how to fix it [do nothing].

The quote from Rothbard in Bob’s article is from a history book. It is describing Say’s thinking. That’s why it doesn’t go into the insight afforded by ABCT, because Say didn’t have it. My first article is working with the added insight ABCT gives us. So trying to say I am wrong by quoting that section of Rothbard is a boo-boo.

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18 Comments

  1. Great response here Smiling Dave. I have been a big fan of your work for some time. I noticed you in the Mises blog in the past and you have done some excellent elaborations. I would rank your blog up there with today’s Austrian heavy hitters like Professor Murphy, bastiat.mises.org, bob wenzel and the like. I have come to view Jonathan Finegold Catalan as a bit disappointing, having to side with the Keynesians and FRB guys on a lot of things. This seems to be due to his admiration for his over-priced econ degree is all, as seems to be the mistake of a lot of the GMU libertarians or anyone taught at the university level really (namely people like Selgin, White and Horwitz). Keep up the good work Smiling Dave. I have been curious for some time as to who you really are. Not sure if you like remaining anonymous, but putting a face to the blog would be cool as far as networking. Either way, remaining anonymous seems to only add more fire to the cause of liberty and spreading Austrian Economics. All the best

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  2. Smiling Dave says:

    Thank you Adrian, for your kind words. I don’t consider myself a heavy hitter, though I might rival Liberty Student for the Sarcasm Award.
    The names you listed, Catalan, Selgin, White, Hurwitz, all have slid down the slope I half jokingly described at http://mises.org/community/forums/t/33177.aspx.

    ‘Tis a lonely vigil at times, making my case then getting trolled by the usual gang of idiots. Your comment cheered me up.

    Thanks again.

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  3. […] Murphy’s web site. As a follow up to a back and forth on Say’s law, I found the below 2 observations by Smiling Dave quite insightful. It should be noted that I am not looking at this, as much about the back forth […]

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  4. Sjon Hill says:

    So Smiley, dare I ask – how is unemployment not a general glut in the supply of labour?

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  5. Smiling Dave says:

    Sjon, your question shows you have to read up on the background knowledge needed to appreciate this article.

    Here’s Wikipedia on General Glut: In macroeconomics, a general glut is an excess of supply in relation to demand, specifically, when there is more production in all fields of production in comparison with what resources are available to consume (purchase) said production.

    We see from that sentence in wikipedia two reasons why unemployment is not a general glut in the supply of labor. First, because the phrase general glut is talking about production. Labor is not a product. You don’t go to the supermarket to buy a bottle of labor.

    I leave it to you to find the second reason.

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  6. Sjon Hill says:

    Berating me, and then onto Wikipedia. Impressive.

    But let me leave my ego out of it. There already is plenty of that on these pages.

    So you claim the supply/demand mechanics for labour are somehow fundamentally different than those of the supply/demand for ‘tangible’ (insofar that term can still be applied this day and age) products. Interesting. I wonder why.

    It might sound rather cold and heartless to think of the people providing labour as products, but from an economic perspective in the context of the general glut discussion, I am not sure if there is a significant difference.

    Either way, would you be ok if we’d refer to unemployment as a ‘labour glut,’ hence not a ‘general glut’? So we could agree that there can be a glut in the labour market, just like there can be a glut in the market for steel, or real estate?

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  7. Smiling Dave says:

    So you claim the supply/demand mechanics for labour are somehow fundamentally different than those of the supply/demand for ‘tangible’ (insofar that term can still be applied this day and age) products. Interesting. I wonder why.

    No, I’m not claiming that. It’s a question of definition. The phrase “General Glut” is a technical term used by economists with a special meaning, the one from Wikipedia. Labor is just not included in that definition, that’s all.

    To give you an idea of what I mean, if I would say that 3 is not an even number, and you would reply “So you claim the supply/demand mechanics of the number 3 are somehow fundamentally different than those of the supply/demand for ‘divisible by two’ (insofar that term can still be applied this day and age) numbers. Interesting. I wonder why.” What would my answer be? That even number is a technical term etc.

    It might sound rather cold and heartless to think of the people providing labour as products, but from an economic perspective in the context of the general glut discussion, I am not sure if there is a significant difference.

    Again, what if you had written in reply to my saying 3 is not an even number, “It might sound rather cold and heartless to think of the number 3 as even, but from an economic perspective in the context of the even number discussion, I am not sure if there is a significant difference.” Again, my reply would be that the accepted definition of “even number” is such that 3 is excluded, by definition. Same thing here. In the definition of General Glut, the discussion is only about production in all fields of production. Labor is not a product of production. It is a factor of production. Again, all these are technical terms with precise definitions accepted in the economics community. My article was based on accepting those definitions, and taking it from there.

    Either way, would you be ok if we’d refer to unemployment as a ‘labour glut,’ hence not a ‘general glut’? So we could agree that there can be a glut in the labour market, just like there can be a glut in the market for steel, or real estate?

    Sure. And of course the way to end the glut is the same in all the cases you mention, including labor. The suppliers have to lower their asking price until they find customers who will pay that new price. In any case, we are beyond the scope of the article, I hope you agree.

    I did not mean to berate you, Sjon.

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  8. Sjon Hill says:

    Great, that was a lengthy way of saying ‘Yes.’ But thank you, we got there, and I agree that there is no point for now to get into a discussion about the specifics of labour as a factor of production compared to the other ones, nor one about the best way to reduce employment (but let the record show that I certainly don’t agree to the ‘just lower wages, the market will clear’ theorem).

    Now, for argument’s sake, let’s theorise that tomorrow some incredibly advanced Japanese tech firm invents a robot that can do any job in the world. Yes, anything. Even blogging. And what’s more, this robot only costs $100 and runs on thin air. It is the best thing since the latest iPhone, so we all want to get plenty. Yet, to prevent robot hoarding, there is also a law that limits robot ownership to one per person. Still pretty wonderful, so we all get one.

    Now, we don’t have to go to work anymore, because instead we all send our robots, which we can buy in the supermarket, perhaps even in a bottle (for the really small jobs you know). We sit at home, push a button every now and then, to ensure the robot is doing its labour efficiently. Meanwhile, we keep our labour in our pocket and consume leisure.

    Yet, some robots sit idle because their owners didn’t and still don’t have a job. Despite those robots being able to do every possible job in the world (even blogging, or did I mention that already?), there just isn’t enough demand for their owner’s labour, so the robots too sit idle. Just like in the pre-robot days actually, although now their unemployed owners have someone (sorry: something) to play chess with.

    I suppose those idle robots still don’t represent a general glut? They remains a glut in a specific product, not a general one, despite these robots being able to do any job in the world?

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  9. Smiling Dave says:

    Correct.

    In fact, they aren’t a glut at all, because they are not products someone is trying to sell, but products unused in the hands of the consumers.

    Is there a glut of television sets at night when people go to sleep and turn them off? No, by definition of the technical term glut.

    Sjon, you should be able to answer these questions yourself by careful reading of the definitions.

    I’m not sure where you are going with this. We aren’t discussing points raised in my humble article, but elementary definitions.

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  10. Sjon Hill says:

    No, these robots would not be sitting at home like switched off television sets. They would not be bought in the first place. If there is no demand for one’s labour, why would one buy a robot to substitute it?

    So, after everybody with a job would have bought a robot during a gigantic robot boom, the demand for robots would crash. Circling back to your original declaration about labour (and other) markets, the solution would be to lower the price of robots until the market starts to clear again.

    But no, that too would not work eventually. For why would I buy a robot even if it costs only 1 cent to make my labour easier if there is no demand for my labour? It would just take up valuable leisure space next to the piano.

    So all the robot factory and shops go out of business, and if even a multitalented robot cannot make my life easier, why is there that I would buy at all? How would I afford it in the first place? I am unemployed and have no discretionary buying power. What we have arrived at, is that a general glut of goods and services (robots and other things) in the economy, since there is just not enough demand for any of it.

    Will it eventually correct? Sure. There comes the business cycle theory – we will just have to go through to the slump until production capacity has been sufficiently cut that the glut has disappeared. If we stretch the temporal aspect long enough, there can’t be a general glut, oh yes. The long run, right.

    I would bet my scalp that you will disagree, but let’s hear it anyway.

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  11. Sjon Hill says:

    The ‘humble article’ bit did make me smile though.

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  12. Smiling Dave says:

    No need to bet your scalp. But you have mixed up the story so I don’t know what to say. Earlier you wrote, “Still pretty wonderful, so we all get one.” And you also wrote, “some robots sit idle because their owners didn’t and still don’t have a job.” And you also wrote, ” now their unemployed owners have someone (sorry: something) to play chess with.”

    Those three quotes imply that the robots are in the hands of consumers, just like the television sets people turn off at night.

    Let me give my attention to a new situation, where the unemployed don’t get a robot, because “there is no demand for their labor”.

    Again, I don’t see what this has to do with my humble article. In any case, you are making several assumptions.

    1. There can exist a state where there is no demand for labor, no matter how low a wage the laborer is willing to accept. 2. The extra robots will not be sold to anyone at any price, no matter how low. 3. I would not buy a multi-talented robot for one cent, even though he could do my house work and teach my children and raise food in my garden and repair my car and do everything else I wanted to get done. 4. If a person is unemployed, he will never get a job. [This is implied in your question, [“How would I afford it?”] 5. I do not need food to live, or clothing, or anything else. [this follows from “why is there that I should buy at all?”] 6. The business cycle theory says a glut will end by a slump in production. [Austrian theory does not say this at all. Maybe Keynesian theory says this, but it is a big mistake.]

    Sjon, all those assumptions are either wildly unrealistic, or else shown wrong by Austrian Economics. I do wish I could encapsulate a complete course in AE in one reply to a comment, but it is beyond my powers. So, much as I enjoyed chatting back and forth with you, I can but refer you to mises.org.

    Glad I brought a smile to your face.

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  13. Sjon Hill says:

    Smiley, really? Mises.org. Come on, you can do better than that. Believe me, I have been over the whole Austrian school from left to right and top to bottom. And there are useful insights in it, absolutely, especially for micro. And even for macro, it is a worthy part of the history of economics. Yet, it is not 1944 anymore, and as a whole I have found it to at worst proven to be wrong or resting on premises that require assumptions that are such that the arrived-at conclusion becomes hollow. And at best, it can be right, but only on a very long time horizon and under conditions and with effects that most people born after 1900 would consider outright immoral and unnecessary for

    I’d be interested in seeing the material that proves in particular alleged assumptions (1) and (2, for a good in general, not specific to robots I hasten to add) wrong. And by proof, I don’t mean a theory, I mean a conclusion arrived at by empirical means based on a set of real, unbiased data. Especially for (1), you know very well that that does not exist. Even slave labour has historically known excess supply issues. Of course, again, if we stretch the time horizon long enough, there won’t be any such issues. Eventually the market clear, rebalances or call it whatever you want to call it. But then again in the long run… oh no, I had better not put such quotes on these pages.

    In particular, I note that your refutation of (4) rests on the aforementioned very long time horizon. If not, then no, I do not assume that a person will necessarily never get a job. He may at some point, but unless some point is next week or next month, this is hardly relevant to assess the current state of the economic system he is part of.

    (5) – see ‘discretionary buying power;’ ie beyond necessities.

    (6) Really? Now this is news. If a glut in supply (be it general or in specific goods/services), created by a (yes, of course, credit-fuelled I should add) boom in consumption and investment, does not constitute the very essence of ABCT, then what does? How would you define malinvestments if they do not constitute the (means of production for) supply that exceeds demand when the bust comes? What is the bust about other than the liquidation of the now unproductive assets previously supplied and the debt that financed them? How would you define ‘unproductive’ at all without building on the idea of a supply glut in the first place? Surely not a demand shortage I hope!? (pretends outrage)

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  14. Smiling Dave says:

    Sjon, if you have found something convincing you of the incorrectness of AE, then what is the point of this discussion? You know I am wrong in all I assume, and that’s that.

    I think by 1, you mean my implied assertion that if wages are low enough, everyone will get hired who wants to work? I am not the person to ask about data. As for theory, if you deny the validity of logical reasoning, I can’t help you. Reasoning is all we have. It is what distinguishes us from the beasts. But you know about this assertion this already, and have proven it wrong by reasoning about it.

    In any case, do you know of any economist of any school who thinks if wages are low enough there will still be unemployment? Do the laws of supply and demand not apply to labor? As for slaves, they are usually very expensive, in the sense that they do not produce enough to cover the costs of keeping them alive and captured. But I don’t need to tell you that, because you know all of AE already, which includes research on slavery.

    I presume by 2 you mean my implied assertion that if the price is low enough, a good will be bought by someone. Do you know of any economist of any school who disagrees with such a statement?

    About 4. If you grant that eventually a person will get a job, then why can he not afford the robot? Now you modify your original statement and grant that he will get a job after a very long time only. But that is also a mere assumption of yours, with no evidence. In other words, 4 is really 1 in different garb, and has been talked about above.

    5. If a person has enough for necessities, then he can skip a dinner, save himself a penny, and buy the robot.

    6. I was assuming that when you wrote “production capacity” will be cut, you did not include malinvestments being dismantled in that description. Ridding the economy of malinvestments increases productive capacity; it does not decrease it. But you know this already.

    Again, this has turned into a discussion about the foundations of AE, which you already know and already have proven to your satisfaction to be incorrect. This is not the place for such a discussion, and I also don’t see the point in it.

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  15. Sjon Hill says:

    Well, the point of the discussion was that I came looking for the promised refutation of Keynesian ideas, in favour of Austrian economics in simple words. That is what the plate on the door says after all. Helas, I did not find. Yet (?).

    By (1) yes, I mean proof of the theory that the solution to unemployment is to lower the cost of labour, if necessary by a lot, yes. And don’t you worry, the theory is crystal clear. It is very of an almost elegant simplicity after all: there is only unemployment because the wages are too high. An employment-seeker should just lower his demanded wage, or simply seek elsewhere. I see you sneaked in the telling ‘willing to work’ bit, which is indeed the kind of fine print condition I spoke of: one that makes Austrian theory work, although it loses it morality in the process. For it implies that those labourers who would like to have an honest income, are happy to work hard in exchange for a half-decent standard of living, are too proud/stubborn/stupid (you name it) to take a job that pays them wages that do not even cover a basic level of subsistence needs (unemployment benefits would normally enter the discussion here, but I am all but sure you despise those too). These workers unwilling to work for a hunger wage do not count as unemployed in Austrian theory, because they are not willing to sell their labour cheaply enough. If only they did, the market would clear and voila, problem solved. Sure, this MAY prove theoretically consistent, but as noted, implies immoral political-economic choices, including the return to slave labour as an ultimate measure. Slaves by the way are not expensive. Sure, they incur a relatively large recruitment cost, but after that all you need to do is feed and occasionally clothe them, and you benefit from an economy of scale in doing that, so it really can’t get cheaper than that, unless you assume that people would even be willing to work for wages lower than it would cost to avoid starvation? With the motto ‘rather die on a job than in the gutter’?

    And yes, I said MAY – for there is no empirical evidence whatsoever that even the most radical wage liberalisation solves unemployment, let alone increases welfare. And yes, that matters. Because any half-decent theory can always be made to work in theory, as long as you impose sufficient conditions, and don’t challenge the underlying assumptions. But if such a theory therefore does nothing to explain what we observe in reality, and hence also does not help us make informed policy decisions at all, it is useless. That is where I am with large swathes of Austrian economics, and it is not unlike latter day communism in that aspect: great in theory, if such, when so and only during then, but doesn’t work in practice.

    And since you asked, the idea that lowering wages do not solve unemployment, and indeed can even perpetuate or worsen it, is very very central to Marxist, Keynesian and neo-Keynesian economic thinking. Read up please. What do you think the purpose of the New Deal was for instance? Pretty reservoir lakes?

    Moving on: for (2), oh yes to that question too. It is good old and very simple inelasticity of demand you see at work there. No matter how cheap the bread is, there is no reason for me to buy more than I can eat before it perishes. You can get old fridges and defunct TV sets for free all over the place (PM me if you need one k). But they have no utility, so you don’t. Similarly, robots for which there is no use, will not be in greater demand even when their prices falls if there is no use for them. It is the ceteris paribus principle that is a key underlying assumption in basic market theory, albeit it often forgotten. The demand for a normal good will be higher at a lower price, if all other things stay the same. Sure, sure, that is nice for a moment frozen in time, but all other things rarely stay the same when the clock starts ticking again, do they now. For one thing, the more of a good is sold, the more saturated its market becomes and the greater the inelasticity of its demand. It one of those pretty slopes with an exponentially declining curve (theoretically approaching zero, but never actually touching it, although in practice, it does). That is what is happening with my robot example. And it happens with labour too. Have a look at pre-industrial societies, or even just China 40 years ago, or India now. Deep pools of excess labour, available at next-to-nothing (like 1 cent robots, no disrespect to the Chinese or Indians meant!), but they weren’t/aren’t used, not until the likes of Deng started state-led export-oriented economic reforms. But that is another bedtime story.

    (4) – sorry but you have lost me there. I never assumed the person would never get a job, that was my whole point. And never or only after a very long time are the same to me for the purposes of this story. There is little comfort in being unemployed but knowing that if you wait long enough, and wages falls, you will eventually (5, 10 years?) get a job again. The point is that he is unemployed now, and likely to be so for the foreseeable future. Therefore, there is no point for him to buy a labour substituting robot. Just like there is no point in me buying more bread than I can eat before it perishes, even if the bread is really cheap.

    (5) Why would a person skip a dinner to buy something from which he can derive zero utility? Sure, we can babble on about how the robot can do the laundry too, but the point of my example was to use the robot of a tangible example as a substitute for paid labour, not as a substitute for housework. Say that our imaginary Fanuc world already has other robots for housework if you wish. Inventing new utilities for the robot changes nothing to the idea at stake in this very crude model: there is a marginal utility in any consumption or investment of capital, and if that marginal utility is very low or zero, the consumption or investment will not take place, even if the price of such a good/service is very low or zero. At that point, there is a supply glut in the market for that good/service. I actually thought that this is something we had established agreement on, but anyway.

    (6) No, I certainly did not know that the ‘Ridding the economy of malinvestments increases productive capacity.’ That is a whole new world to me, in an Alice in Wonderland kind of way. How does this work?

    The very definition of an investment is a purchase of some form of productive capacity. An airport, a university degree, a steel-mill, a new piece of software… I mean, pick your own example if you wish, but I cannot think of any other reason a government, a business or an individual would build/acquire any such a resource if it was not with the goal of increasing productive capacity in one shape or form. The very core of ABCT rests on this idea for crying out loud: due to unsustainable credit expansion, the economy invests too much in airports/degrees/steel mills/software/whatever, largely due to erroneous expectations about future growth, especially by the government. Debt is built up, and too much productive assets are generated. And then the bubble bursts, and you are left with bridges to nowhere, ghost towns and a lot of other mess. And then (all according to ABCT), there is no other good solution but to liquidate debt, which of course also means you need to liquidate assets, since a balance sheet remains a balanced sheet, even in ABCT. So there come your write-down real estate, your factory closures, and so on, and so on.

    And we should keep doing that until the malinvestments (and note: they are only ‘mal’ with the benefit of hindsight now that it has become clear there is no productive use for them).

    Hey… come to think… it sounds a bit like there is a general glut there.

    That is where I wanted to go my dear Smiley. How do you reconcile ABCT with your dogmatic adherence to the most stringent form of Say’s Law (which was so stringent even Say had to admit some water had to added).

    In other words, what are malinvestments other than capital put into resources (human, physical or technological) that are not (or rather: no longer) productive? How do you then not call the existence of those malinvestments and the productive capacity they harbour an excess of supply in relation to demand, specifically, when there is more production in all fields of production in comparison with what resources are available to purchase that production?

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  16. Smiling Dave says:

    the promised refutation of Keynesian ideas, in favour of Austrian economics in simple words. That is what the plate on the door says after all.

    I have a few articles about sports. Do you think I promised to refute Keynesian ideas in those articles, too? You found the plate on the door, now you have to go to the correct room. Do a search here for Keynes, and for “decisive one liner”, and you will find my refutations of Keynes. The problem is, you know everything they say already, because they are based on well known Austrian sources, and you know AE inside out.

    Sjon, you keep moving the goalposts. First you wanted to talk about whether unemployment means a general glut of labor. Then you wanted to talk about a world where everyone gets a free robot. Then they don’t get it free, but it is multi-talented and certainly useful around the house and only costs a penny. Now the story has changed, and they cannot work at home, and they aren’t even robots anymore, but tangible substitutes for paid labor, whatever that means. Tell you what, take a couple of days off, settle on a final version, decide what exactly you are asking. And it better be related to the points raised in this humble article, or else post it elsewhere.

    How did hunger wage get into the story? As one familiar with all of AE inside out, shame on you. You should know what determines the level of wages. And Keynes is certainly talking about a society so wealthy and advanced that hunger wages are not part of the story. As for your take on slavery being profitable, where is your data? As one familiar with all of AE, you surely know about the data collected that says the opposite.

    Also, as one familiar with all of AE, you surely know the difference between a theory that is merely logically consistent and MAY be right, and one that is provable from first principles. We are talking about the latter, as you surely know, so why are you going on about the former?

    You make a lot of unsupported assertions about AE not working in practice, and not explaining reality, and not giving informed policy decisions. So you say. But, begging your pardon, you err.

    You say you know AE inside out, but you show total ignorance of the Austrian literature on the Great Depression and the New Deal.

    The robots you described seem ultra useful to me. I would happily take as many as possible. I’m sorry, I cannot read your mind and know how you will change the scenario, and respond to what you didn’t write about, only about what you did. I said your robot scenario makes certain wild assumptions, and by changing the scenario after I point them out, you are admitting I’m right. And for one who knows all about AE, you certainly don’t show any understanding of why China 40 years ago had cheap labor, nor why conditions improved there. It’s farcical to call the improvements in China state led, when all they were were removal of choke holds the state had on the economy.

    I’m sorry you didn’t understand point 4. I can only suggest you re-read it a couple of times. Hint: pay attention to what you wrote before about the robots, not to what you are re-inventing them to now.

    I showed the incredible utility of having a robot such as you described. If you have one in your garage, I will pay much more than a penny for it right now. And again, you keep changing the scenario. At first everyone had a free robot. Then they didn’t. Now everyone has a free army of other robots which can do everything they need for them, so many they find no use for another robot that can do anything. And you lecture me about ceteris parebis!

    Your summary of ABCT is flawed. In particular this line, “Debt is built up, and too much productive assets are generated.” No too much unproductive assets are generated. A college degree is an excellent example. Plenty of degrees are totally useless and cannot be called productive assets.

    Hey… come to think… it sounds a bit like there is a general glut there.

    So this was the point of your whole story. All I can say is you have to improve your reading comprehension. You still don’t know what a general glut is. ABCT certainly is not saying there will be a general glut.

    This line, too is a big mistake. “…when there is more production in all fields of production” No. There is more production in certain fields, and the wrong ones to boot. Since we live in a world of scarcity, this comes at the expense of less production in the correct fields of production. But as one who knows AE inside out, right to left, and up and down, this is nothing new to you.

    Sjon, much as it was fun talking to you, I repeat, this venue is not the place for it. Go the mises.org forums, state your case, build your robots, and I’m sure you will find profitable discussion there. I have indulged you so far, but I can do so no longer. I will have to, reluctantly, not allow further comments here on this fascinating topic.

    Like

  17. lio67 says:

    From what I could tell, it seems that there are three categories of people who deal or have dealt with Say’s Law:

    1 / those who fully understand it

    2 / those who understand it very well but do not accept its political implications, and therefore seek to distort it to better refute and mislead the reader.

    3 / those who do not understand it at all or not very well.

    As far as I can judge, Smilingdave is in the first category.

    Like

  18. Smiling Dave says:

    Thanks lio.
    You may know about my campaign to get a Nobel Prize [see recent posts].
    Your comment will serve as valuable evidence.

    Like

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